Co-borrowers must be co-owners and contribute to EMIs to claim tax benefits

The deduction claimed must be in proportion to their ownership share and actual EMI contribution

A home loan not only makes property ownership more accessible but also offers valuable tax benefits under the Income-tax (I-T) Act, 1961. However, these deductions come with specific conditions, limits, and timelines that are often misunderstood.

Tax benefits on interest paid

Under the I-T Act, 1961, interest on a self-occupied home is deductible up to ₹2 lakh annually, provided the loan is for purchase or construction, and the latter is completed within the prescribed time. If the loan is for repairs or construction is delayed, the deduction is capped at ₹30,000 annually.

 

For a let-out or deemed-to-be-let-out property, the full housing-loan interest is deductible. However, loss set-off against other income is capped at ₹2 lakh per annum, with the balance carried forward.

 

Deduction on interest can be claimed only from the year of completion or possession, not from the loan sanction date or the date of start of EMI.  

 

“Sections 80EE and 80EEA offer additional interest deductions for eligible first-time and affordable-home buyers, over and above Section 24(b), subject to prescribed conditions and timelines,” says Shubham Jain, director, SVAS Business Advisors.

Treatment of pre-construction interest

Interest paid before possession is treated as pre-construction interest. Jain points out that pre-construction interest cannot be claimed in the year of payment and is instead allowed in five equal instalments starting from the year of completion or possession, under Section 24(b). Also, no deduction is allowed for an unoccupied property.

Deduction on principal repaid

Under Section 80C, principal repayment on a housing loan is deductible within the overall ₹1.5 lakh annual limit, which is shared with other eligible investments such as Employees’ Provident Fund (EPF), Equity Linked Savings Scheme (ELSS), life insurance premiums, and so on.

 

“Deduction for principal repayment under Section 80C can be claimed only after the right to possession of the property is obtained,” says Neeraj Agarwal, partner, Nangia & Co LLP. He adds that if the property is sold within five years from the end of the financial year in which possession is obtained, all Section 80C deductions claimed for principal repayment become taxable in the year of sale and are added to the taxpayer’s income.

 

Stamp duty, registration, and other property transfer costs are also deductible under Section 80C, up to the ₹1.5 lakh limit, but only in the year they are paid.

Deductions under new tax regime

Under the new tax regime, most housing-loan deductions are not available. “Principal repayment under Section 80C and interest on self-occupied property under Section 24(b) are disallowed. However, interest on a let-out property is still allowed while computing ‘income from house property’,” says Agarwal.

Tax rules for co-borrowers

Co-borrowers can claim deductions on interest and principal only if they are also co-owners of the property and contribute to EMI payments.

 

“Simply being a co-borrower does not entitle an individual to tax benefits. To claim deductions under Section 80C or 24(b), the person must be both a co-owner of the property and contribute to the loan repayment,” says Sudhakar Sethuraman, partner, Deloitte India.

Apportioning deductions

Co-borrowers who are also co-owners can claim deductions only in proportion to their property share and actual EMI contribution, ensuring benefits match their financial stake. Sethuraman notes that co-borrowers should align their ownership shares with their actual loan contributions. This ensures tax deductions are claimed accurately and within each co-owner’s legally permissible proportion.

 

Finally, home loan borrowers must be cautious on a few counts while claiming deductions, such as exceeding Section 24(b) or 80C limits. “Authorities often disallow deductions due to lack of co-ownership, unverifiable repayments, or mismatch between ownership share and claimed benefits, leading to partial or full denial,” says Sethuraman.

 

Common mistakes to avoid

• Claiming tax benefits before taking possession
• Failing to distribute pre-construction interest over the required five years after possession
• Not having documents such as interest certificates or possession letters, which leads to inaccurate filings
• Claiming first-time homebuyer benefits without fulfilling eligibility criteria under Sections 80EE and 80EEA